Local cannabis company forms Alberta partnership

January 31, 2018

Delta 9 Cannabis Inc., Winnipeg’s major player in the red hot marijuana market, is jumping on the consolidation bandwagon, partnering with an Alberta company to build a production facility in southern Alberta.

Delta 9 has signed a non-binding letter of intent with Westleaf Cannabis Inc., designed to fast track that company’s production licence application and giving Delta 9 a toehold in the Alberta market.

There were no details on the financial commitment Delta 9 is making, but CEO John Arbuthnot said, “Both companies will put in the equity component and Delta 9 will contribute the grow systems, the intellectual property, the plant genetics, all those components, and Westleaf will help with the operation of the Alberta facility and with boots on the ground in Alberta.”

Westleaf does not yet have a production or sales licence. But that is expected to be expedited with the Delta 9 partnership, because Health Canada gives preference to companies that are already licenced.

The thinking is that since Delta 9’s modular production model has already been approved by Health Canada — the Winnipeg company uses repurposed shipping containers and hydroponic systems — it will be easier for the regulator to approve another facility using the same process.

As well, Arbuthnot said, he believes having an equity partnership stake in an Alberta operation will give the partners an advantage in making its pitch to get into the retail business in that province. (Alberta is behind Manitoba in establishing the regulatory framework for the retailing and distribution of marijuana for recreational use, which is to become legal in July.)

Westleaf, which has some ex-Winnipeggers among its core team, is also planning a Saskatchewan operation. Arbuthnot said he was not able to talk about whether or not Delta 9 will also participate in that project at this time.

The company’s Winnipeg operation will be up to an annual production rate of 17,500 kilograms by the end of this year. The joint venture in Alberta will be a smaller facility, at about 4,000 kilograms per year.

Delta 9 went public on the TSX Venture Exchange in November after a reverse takeover and started trading at 65 cents. It raised about $23 million at the end of last year at $ 2.70 per share. The stock closed at $2.73 after Monday’s trading.

“We’re fully financed now,” Arbuthnot said.

“There’s no holding back.”

The Delta 9/Westleaf deal was part of another busy day in the marijuana sector.

Aphria Inc. agreed to buy Nuuvera Inc., a global cannabis company based in Brampton, Ont., for about $826 million in cash and stock. The offer of about $8.50 a share is 21 per cent higher than Nuuvera’s closing price on Friday.

While the combined Canadian market for medical and recreational market is expected to reach about $8 billion in sales by 2021, companies such as Aphria and Nuuvera are looking to grow in markets where there’s even bigger potential.

“This positions us to grow internationally and realigns the potential of these emerging cannabis markets,” Aphria chief executive officer Vic Neufeld said Monday on a conference call.

Nuuvera is working with partners in Germany, Israel and Italy and is exploring opportunities in other countries to develop commercial production and distribution of medical cannabis. Combined with Aphria’s agreements in Australia, the merged entity will have a “leading international footprint among Canadian licensed producers,” the companies said Monday.

Nuuvera is one of the finalists in a tender to supply Germany’s market and the company already has an agreement to export marijuana to a German pharmaceutical distributor, CEO Lorne Abony said. Italy’s medical cannabis market is expected to be worth more than $9 billion and Nuuvera is currently one of only seven producers that have secured a licence to import into the country, he said.

The transaction comes less than a week after Aurora Cannabis Inc. agreed to acquire CanniMed Therapeutics Inc. in a $1.23-billion deal that would be the largest yet in the Canadian marijuana industry.